Asia: Japan

The Japanese economy showed steady recovery for
20032007. However, due to the global recession in late
2008, Japans GDP growth decreased to 1% in 2008 and
to 5.5% in 2009. Due to the counter-effect from the low
growth rates in 2009 and 2010, the GDP growth rate showed high
recovery of 4.4% in 2010. In 2011, the earthquake on March 11
damaged some manufacturing plants in the Tohoku and Kanto
Districts. The damage to part producers in Tohoku District
disrupted the supply chain to user industries,
especially the automobile industry. As a result, 2011
automobile production in Japan decreased by 13% from 2010
levels.

Production and consumption: Ethylene

Table 1 summarizes Japans ethylene
production and ethylene-equivalent consumption and trade. The
ethylene-equivalent demand increased during 20022007.
However, it decreased in 2008 and 2009 because of the global
recession. In 2010, ethylene-equivalent consumption recovered,
but it decreased again in the following year. In 2011, the
exports of ethylene-equivalent chemicals decreased and imports
increased.

Table 2 shows the correlation between the
growth of ethylene-equivalent demand and GDP growth. The table
shows that domestic ethylene-equivalent demand strongly
correlated with economic conditions. Although the growth rate
of domestic demand has the same tendency as the GDP growth
rate, ethylene-equivalent consumption is less than that for
GDP. A possible explanation is that petrochemical-consumer companies
have been shifting their manufacturing base from Japan to other
Asian-Pacific countries and increasing imports of finished
goods, such as electrical appliances, toys and plastic
bags.

Fig. 1 shows that the volatility of
ethylene-equivalent demand is higher than the volatility of
GDP. This can be explained by the inventory cycle. Production
cannot be modified as quickly as inventory during recession
times. Consequently, these conditions cause overshooting or
undershooting of ethylene-equivalent demand against GDP
changes. Fig. 2 shows domestic monthly
ethylene production rates for 2010 and 2011.

Fig. 1. Ethylene
demand and GDP growth:
20002011.

Fig. 2. Monthly
ethylene production.

The March 11 earthquake damaged chemical plants and
refineries in Tohoku and Kanto Districts. Four ethylene
crackers were shut down; these crackers have a total ethylene
production capacity of 1.8 MMtons and account for 23% of
Japans ethylene capacity. Among these four crackers, two
crackers were started up less than one month after the
earthquake. The other two ethylene plants were started up in
May and June of 2011. Due to the shutdowns, ethylene production
was lower in 2011, as shown in Table 1.
However, Japans ethylene production was affected more by
the global economic slowdown triggered by the euro crisis.

Fig. 3 shows the monthly
ethylene-equivalent consumption and net exports in Japan.
Please note that the monthly statistics include a time lag
between calculated and actual consumption because of inventory
changes. Ethylene-equivalent consumption was affected by the
March 11 earthquake. Consumption sustained a relatively high
level from April to August of 2011 because of the recovery and
reconstruction. However, consumption began decreasing in
September 2011 due to the global slowdown.

Fig. 3.
Ethylene-equivalent consumption.

Aromatics

Table 2 summarizes aromatics production
from 20002011. Like ethylene, the aromatics production
also increased during 20032007; however, it dropped by 9%
in 2008 and by 4% in 2009. In particular, benzene decreased by
13% in 2008 and further decreased by 7% in 2009 due to low
styrene monomer (SM) production. Conversely, xylene production
did not decrease so much due to steady demand for paraxylene
(PX) and purified terephthalic acid (PTA). Toluene production
is linked to the operating rate of disproportionation and
dealkylation units. Aromatics production recovered in 2010 but
decreased in 2011.

Table 3 shows production and consumption
(trade) of aromatics in 2010 and 2011. As shown in
Table 3, benzene production and consumption
decreased in 2011 due to low SM production and declining
exports. Toluene production also decreased due to declining
exports. However, toluene consumption increased by 9% because
of strong demand for disproportionation units and gasoline
blending components. Xylene production decreased as several
production facilities were damaged by the
earthquake. Demand remained low until summer 2011, but
recovered in Q4 in response to growing demand by other
Asian-Pacific countries.

Trade

As shown in Table 1, Japanese
ethylene-equivalent exports increased during 20012007 in
response to the steady growth of the world economy, especially
in Asian-Pacific countries. However, in 2008, exports decreased
by 24% due to the global recession. In 2009, exports increased
and sustained high levels through 2010, fueled by growing
petrochemical demand in other Asian-Pacific countries. However,
exports decreased in 2011 mainly due to earthquake damage to petrochemical production facilities. The economic slowdown in
late 2011 also adversely affected exports.

Ethylene-equivalent imports in 2011 increased by 33% to make
up for production shortages caused by the March 11 earthquake.
A strong yen also stimulated imports.

From Fig. 4, it can be seen that
ethylene-equivalent net exports decreased, especially from
April to July 2011, due to production facility damage. After
the summer, net exports recovered as the facilities again began operating.
However, with slower economic conditions in late 2011,
ethylene-equivalent exports decreased in November and December.
A strong yen also affected the situation, with decreases in
exports and increases in imports.

Fig. 4.
Ethylene-equivalents net exports.

Profits

Table 4 summarizes sales and profit for the
petrochemical segment of 11 Japanese chemical companies
operating ethylene crackers. The profit of the petrochemical
segment showed cyclicality in the past. Since the trough of
2001, profits and sales increased due to a tight
supply-and-demand situation until 2007. However, a loss was
recorded from late 2008 to March 2009. The financial loss
continued in fiscal 2009, but it recovered in 2010. It was
estimated that fiscal 2011 would be a difficult year for the
petrochemical industry. Effects from the earthquake and
declining export levels along with low petrochemical
demandespecially in the automobile, electrical and
electronics industriesstill remain.

Investment

Japanese petrochemical companies actively invest in both
domestic and overseas markets. The companies prefer commodity
chemicals for overseas investment projects, and they focus on
high-performance chemicals and feedstock ventures in Japan.

In commodity chemicals, almost all investments are made in
countries with abundant raw materials, such as the Middle East,
or nations with growing consumer markets, such as other
Asian-Pacific countries. Sumitomo Chemical started up its
ethylene complex in Rabigh, Saudi Arabia with Aramco in March
2009. Mitsubishi Group companies have invested in a cracker
project in SHARQ, Saudi Arabia. Mitsui Chemical announced its
alliance with SABIC in the urethane business in February 2012.
Mitsui will license its toluene diisocyanate and methylene
diphenyl diisocyanate process to SABIC.

In China, several projects are in progress. In 2009,
Mitsui Chemicals started up a bisphenol A (BPA) plant, and it
plans to start up a phenol and acetone plant in 2014.
Mitsubishi Chemical started up a PTA plant in 2006, a
polytetramethylene ether glycol plant in 2009, and BPA plant
and polycarbonate plants during 20102011. Mitsui Chemical
also has been expanding its production capacities in Indonesia,
Thailand and Singapore, while Mitsubishi Chemical is expanding
its petrochemical production capacity in India.

In domestic investment, petrochemical companies focus on
propylene and aromatics rather than ethylene. US-based,
low-cost shale gas is changing the competitiveness of North
American gas crackers. For propylene, in addition to metathesis
plants from Mitsui Chemical and JX Nippon Oil & Energy
Corp., Mitsubishi Chemical started up a metathesis plant in
Kashima. Furthermore, many companies are now developing technology for on-purpose butadiene
production, including Mitsubishi Chemicals and Asahi Kasei
Chemicals.

In addition to large-volume petrochemicals, Japanese petrochemical companies are
expanding their businesses into value-added products, both in
Japan and in other Asian countries, such as performance
materials for IT and electronics industries. Engineering
plastics are good examples of high-performance products.
Japanese companies have invested in specialty engineering
plastics projects located in Japan and
commodity engineering plastics outside of Japan. Mitsubishi
Rayon acquired Lucite International Group Ltd., a leading
methyl methacrylate (MMA) producer. Mitsubishi Rayon is
expanding MMA capacity in the US, Korea and Saudi Arabia, along
with poly methyl methacrylate capacity in Thailand, Korea and
Saudi Arabia. Polyplastics, Toray and Sumitomo Chemical have
expanded liquid crystal polymer capacities in Japan. Toray,
Tosoh and DIC have expanded domestic polyphenylene sulfide
capacities. Conversely, Polyplastics plans to start up a
propylene oxide/SM plant in Malaysia. HP

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